My Neighbor's Dog Spot

My neighbor's dog Spot is well trained. Just the other day I bumped into him
in the front yard. I had a cookie in my hand. Spot wanted the cookie. He proceeded
to 'roll over' to show his willingness to perform a trick for the treat. Works
for that dog virtually every time - call me a sucker if you will. I've seen
it happen too many times. The reward of food seems to reinforce the behavior.
This got me thinking? I wondered to myself, was this affectionate display instinctive
or learned? I settled on the latter because my neighbor always tells me how
well trained his dog is. Somehow, that rational is never mentioned when the
same dog has a biodegradable "accident" on my front lawn. While this behavior
produces a scolding and is never rewarded, it still happens from time to time.
It's one of those things that most people accept as nature simply taking its
course. No matter the reason, Spot had come to associate the carnal thought
of food/nourishment with rolling over. Probably a good thing on the noise front
he didn't inadvertently learn to associate 'barking' with the same.

Isn't it funny how the most seemingly arcane things can remind you of something
else? The 'learned response' of the dog, the cookie and the trick made something
twig in my mind, namely the "flight to quality" trade in financial markets.
I view both actions (quite possibly more aptly described as reactions) as being
formed by habit. In an historical context this trade was almost exclusively
exemplified by a flight of capital into precious metals. Now I ask myself,
what's changed? The short answer to this question is that the folks with the
power to create fiat money have decided for us that precious metals should
not seem so precious after all. One must remember, precious metals serve as
a short tight leash for spendthrift governments. Their 'cookie' consists of
paper returns (capital gains, interest and such) which they can print and/or
withhold at will. When the collective "we" behave in the intended fashion of
fiat worship we are rewarded with the same. To date, adherence to this virtue
has produced more "Hail Mary" rallies in our equity markets in the past six
months than I've ever heard in a lifetime from a devout Catholic. The result
is some markets that do not fall as they should while others cannot rise when
they want and need to. This is empirically evidenced and explained by diminished
volumes and volatility. Participants simply stop playing games that do not
operate as they logically should.

So, you might rightfully ask, just how did the powers that be manage to wean
us off our precious metals dependency? Quite simple, they trained us like lap
dogs. Every time the collective "we" buy too much of the stuff, they hammer
the price into submission by selling increasing amounts at lower and lower
prices. The beauty for the price riggers is that they do not even have to possess
very much of the physical product they are selling. They simply sell fiat proxies
for the underlying on exchanges like the COMEX. This enables the riggers to
lever their increasingly diminished precious stocks of metal. Sometimes they
even warn us all very publicly that they might 'consider' selling vast amounts
of physical at a future date (ostensibly to make any inquisitor think twice).
There is no other valuable commodity on the planet whose beneficial owners
do not try to maximize its value when selling. Can anyone imagine GM publicly
announcing to the market that they might have an extra 5 million cars to sell
next year? Do you think that would help them maximize the prices paid/received
for cars today? Ultimately, when people look at their mounting paper losses
it serves as gentle reminder that fiat instruments (like bonds) are a much
safer bet. If/when the supply of physical metal exhausts itself; the bond financing
schemes we are so dependent on will end abruptly.

If you are with me so far, perhaps you are now asking yourself why this is
important and where does it all end? I'll try to deal with these questions
one at a time. Besides the 'cold turkey' pain associated with the above mentioned
exhaustion event, this is important because the "collective we" are being systematically
relieved of our historic stores of value. They are being had for highly encumbered
paper assets which are issued at will. It has required the complicity of the
Federal Reserve to maintain interest rates at larcenous levels. This has particularly
punished the elderly and retired who live on fixed incomes through reduced
living standards. It is important because rigging of financial markets in general
has lead to the creation of bottlenecks and inflation in our economy. This
is particularly important because its perpetuation has required mortgaging
and re-mortgaging the futures of our children and grandchildren. It is also
very important because it is quite simply fraudulent, unethical and wrong (even
if it is financially rewarding for the perpetrators). Once upon a time, I'd
like to believe that alone would have been a good enough reason to stop. Times
have changed indeed.

That leads us to the most pressing question, where is all this going to end?
Let me start by saying most unethical pursuits do not have happy endings. This
one is likely no different. Whatever that 'end' is, it might even be brought
upon us all quite by accident. For the longest time now, it appears to me that
financial markets have been defying the laws of nature. To cite an appropriate
but old cliché, it's generally not nice to fool Mother Nature. As with
my neighbor's dog Spot, nature will likely have its way with us all in the
end. Where I come from that can only mean a large smelly mess on the front
lawn. My question to you dear reader, who's going to clean it up?